Economy grew at 0.1% rate in 4th quarter

View full sizeTaneshia Wright, of Manhattan, fills out a job application during a job fair in New York. The U.S. economy grew at a 0.1 percent annual rate from October through December, the weakest performance in nearly two years.Associated Press file

WASHINGTON -- The U.S. economy grew at a 0.1 percent
annual rate from October through December, the weakest performance in
nearly two years. But economists believe a steady housing rebound,
stronger hiring and solid spending by consumers and businesses are
pushing economic growth higher in the current quarter.

The
Commerce Department's second estimate of fourth-quarter growth was only
slightly better than its initial estimate that the economy shrank at a
rate of 0.1 percent. And it was well below the 3.1 percent growth rate
reported for the July-September quarter.

The revision to the gross
domestic product was due to higher exports and more business
investment. GDP is the broadest measure of the economy's output.

Many
economists say temporary factors that held back growth in the fourth
quarter are probably fading and growth is likely picking up in the
January-March quarter.

Paul Ashworth, chief U.S. economist at
Capital Economics, predicts growth could be as high as 2 percent in the
current quarter despite higher Social Security taxes, which have reduced
take-home pay for most Americans. Alan Levenson, chief economist for T.
Rowe Price, said growth could be as high as 2.5 percent.

Ashworth
noted that a sharp decline in defense spending and slower business
restocking subtracted 2.9 percentage points from growth in the fourth
quarter. At the same time, consumer spending and business investment --
two key drivers of growth -- accelerated at the end of last year.

"We still believe that the fourth-quarter GDP figures were a lot better than the headline stagnation suggests," said Ashworth.

The
economy could continue to struggle if policymakers in Washington cannot
reach agreements over the budget his month, including billions of
dollars in spending cuts that are set to begin on Friday. And a spike in
gas prices and higher taxes could hold back consumer spending.

Still, a raft of recent reports suggests that many aspects of the economy are improving.

The
Labor Department said that the number of Americans seeking unemployment
benefits fell 22,000 last week to a seasonally adjusted 344,000. The
steep decline comes as hiring has strengthened, providing more income to
consumers.

Employers have added an average of 200,000 jobs per
month in the past three months. That's up from an average of 150,000 in
the previous three months.

At the
same time, the number of new homes available for sale remains near
record lows. That means builders will likely have to start construction
on more homes and apartments to keep up with demand. That should create
more construction jobs.

Home prices also rose in December compared
with the same month a year ago by the most in more than six years.
Rising home values also contribute to the housing recovery and the
broader economy. They encourage more people to buy before prices rise
further. Higher prices also build homeowners' wealth, which can spur
more spending and economic growth.

Businesses and consumers are
also showing greater confidence despite automatic spending cuts
scheduled to take effect on Friday. A measure of consumer confidence
rebounded in February after a sharp fall the previous month that likely
was a result of the tax increase.

Companies, meanwhile, sharply
increased orders in January for a category of long-lasting manufactured
goods that reflect their investment plans. That suggests they are
confident about their business prospects.

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